For retired clients, dump the life insurance policy?

If they have sufficient savings to maintain their lifestyle, most people who reach retirement age don’t need life insurance anymore, says Ray Mignone, a fee-only advisor based in Little Neck, N.Y.Mignone reminds clients that the reason they purchased life insurance in the first place was to protect the bread winner and make it possible for the surviving spouse to put the kids through college. Since these factors are no longer in play once they retire, Mignone asks his clients to reconsider whether the additional expense is still warranted.There are numerous exceptions, he allows, such as a divorce decree, a buy-sell agreement or a second marriage with young children, which necessitate keeping a post-retirement life insurance policy in force. But these, he says, have to be approached individually.Another consideration for New York State residents: A few years ago, when the state’s estate tax ceiling was much lower, a lot of retirees purchased second-to-survive policies. Since then the ceiling has been raised to $10.5 million—so a $5 or 6 million estate would be passed on tax free, leaving the surviving spouse with plenty of assets off of which to live. For many New York retirees, Mignone says, that means it no longer makes sense to maintain the policy.But Mignone is quick to point out that canceling one’s coverage shouldn’t be a casual decision. In some instances, his clients have already paid a great deal of money into these policies, and given their advanced years will never be able to obtain another one for the same rate. So before dropping the coverage, he encourages them to think long and hard about any possible implications.For people without much savings, the calculus of maintaining life insurance during retirement is different.The question is still whether or not to keep an existing policy, which the clients have been maintaining for years. A small policy won’t change their lifestyle, so it’s not worth the expense. But people with fewer assets may depend on a pension that the surviving spouse will lose or have reduced by half in the event of the pensioner’s death. In instances like those, Mignone says it may make more sense to hold onto the policy as a backstop.